2007 (1) TMI 599 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of short-term capital loss on sales of units of JM Mutual Fund.
2. Levy of interest u/s 234B.

Summary:

Issue 1: Disallowance of Short-Term Capital Loss
The assessee, engaged in the export of onion and a partner in multiple firms, reported short-term capital gain on the sale of shares. The Assessing Officer (AO) deemed the transaction with JM Mutual Fund as a sham, aimed at evading taxes by claiming a short-term capital loss of Rs. 30,49,194/- to offset the capital gains. The AO noted that the assessee purchased units cum-dividend and sold them ex-dividend within four days, resulting in a tax-free dividend of Rs. 29,03,326/- and a claimed capital loss. The AO disallowed the loss, terming it a "colourable device."

On appeal, the CIT(A) upheld the AO's decision. The Tribunal, after considering submissions from both parties, agreed with the AO and CIT(A), citing the transaction as a "colourable device" and not genuine. The Tribunal referenced the Supreme Court's principles in McDowell, 154 ITR 148 (SC), and the Punjab and Haryana High Court's decision in Vineet Jain v. CIT, (2006) 205 CTR (PandH) 92, which supported the view that such dividend-stripping transactions were not genuine. The Tribunal emphasized that the transaction lacked elements of business or investment and confirmed the disallowance of the short-term capital loss.

Issue 2: Levy of Interest u/s 234B
The Tribunal did not provide separate detailed reasoning for the levy of interest u/s 234B amounting to Rs. 4,79,301/-. However, by dismissing the appeal and confirming the CIT(A)'s order, the Tribunal implicitly upheld the levy of interest u/s 234B as justified based on the disallowance of the short-term capital loss.

Conclusion:
The appeal filed by the assessee was dismissed. The Tribunal confirmed the CIT(A)'s order, disallowing the short-term capital loss and upholding the levy of interest u/s 234B. The Tribunal found the transaction to be a sham and not genuine, aligning with the principles laid down by higher judicial authorities.